Don't Break the Bank: College Version

By Peterson's

Peterson's Don't Break the Bank: College Edition is the must-have guide for college students who want--or need--to learn how to manage their money. Inside you'll find real-life advice from students as well as expert money-saving tips from financial experts. This guide will help you become financially savvy by explaining important aspects related to earning money, tips for stretching it and sticking to a budget, the pros and cons of credit, advice for saving for your future, and much more. Fun graphics along with the informative, easy-to-read chapters make this the perfect guide for the teen on the go who wants to gain some financial dollars and sense!

• Language: English
• Publisher: Peterson's
• Release date: Dec 20, 2013
• ISBN: 9780768938128

Book preview

Don’t Break the Bank:

College Edition

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About Peterson’s

Peterson’s provides the accurate, dependable, high-quality education content and guidance you need to succeed. No matter where you are on your academic or professional path, you can rely on Peterson’s print and digital publications for the most up-to-date education exploration data, expert test-prep tools, and top-notch career success resources—everything you need to achieve your goals.

For more information, contact Peterson’s, 3 Columbia Circle, Suite 205, Albany, NY 12203-5158;

800-338-3282 Ext. 54229; or find us online at www.petersonsbooks.com.

© 2013 Peterson’s, a Nelnet company

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ISBN-13: 978-0-7689-3812-8

First Edition

A Letter to Students

Dear Reader:

Many people have a love-hate relationship with money. They do not like dealing with it, worrying about it, and working at jobs they may not love in order to earn it. But they also realize that money is sort of a necessary evil. From a practical standpoint, we all know that it is impossible to survive without it.

Of course, money itself isn’t necessarily bad. It’s just that people often display bad behavior in order to get money and then may have bad habits related to spending it.

But if you educate yourself about the responsible ways to handle money, and exercise self-control when it comes to spending it, money can be a good thing. It is what you will use to support yourself and your family, to buy things you need (and, if budget allows, things you want), and also to pay for things like education, travel, family vacations, and other experiences you will enjoy.

Of course, first you have to learn important things about money—such as how to earn it, smart strategies for spending it wisely, and the best ways to invest it.

Learning about money is very important at this stage of your life because, most likely, you are starting to gain some financial independence and handle your own money as an adult. You have college tuition bills and other expenses, and you may have a job or two in order to pay your bills. It’s important that you have the tools to help you understand how to handle money wisely so that you can pay your bills and manage your money—without getting into financial trouble.

This book will help you become financially savvy by explaining

• important aspects related to earning money

• tips for stretching it and sticking to a budget

• the pros and cons of credit

• advice for saving for your future

And much more!

We hope you will find this publication useful in helping you increase your financial know-how. Peterson’s publishes a full line of books—financial aid, career preparation, test prep, and education exploration.

Other Peterson’s books you may find helpful include the following:

• Best Scholarships for the Best Students

• The C Students Guide to Scholarships

• How to Get Money for College

• Scholarships, Grants & Prizes

Peterson’s publications can be found at high school guidance offices, college libraries and career centers, and your local bookstore and library. Peterson’s books are now also available as eBooks and online at www.petersonsbooks.com.

We welcome any comments or suggestions you may have about this publication. Your feedback will help us make educational and financial dreams possible for you—and others like you.

Sincerely,

Peterson’s Editorial Staff

Table of Contents

Chapter One: Money Basics

Banking

Savings Accounts

Direct Deposit

Checking Accounts

Study Your Bank Statement

Types of Banks

Chapter Two: Establishing a Financial Identity

Where to Start

Opening Your First Accounts

Chapter Three: Paying for College

How Much Will It Actually Cost?

Saving for College

Financial Aid

Student Loans

How to Avoid Delinquency and Default on Your Student Loans

Chapter Four: Credit

Credit Basics

Your Credit Report and Score

5 Ways to Avoid Debt in College

Chapter Five: Credit Cards

Credit Card Basics

Chapter Six: Jobs and Working

Your First Job

Work-Study Jobs

Finding a Job

Understanding Your Paycheck

Wage Rules and Regulations

Health Insurance Tips for College Students

Chapter Seven: Budgeting and Saving

Envelope System

Creating a Budget

Tips for Sticking to Your Budget

Strategies for Saving Money

Enlist the Help of the Online Community

Five Tips for Smarter Spending

Chapter Eight: Identity Theft, Fraud, and Other Scams

Understanding Identity Theft

SCAMMING TRICKS

How Fraud and Identity Theft Happen

Chapter Nine: Common Mistakes and How to Recover

Overspending

Getting into (Too Much) Debt

Chapter Ten: Thinking Long Term

Why Start Saving When You Are Young?

Retirement Plans

Investments

MONEY QUIZ

Glossary

Resources

Chapter One:

Money Basics

BANKING

By this point in your life, it’s likely that you already have a checking and/or savings account and probably have lots of experience with money and financial transactions—including shopping online and buying things at a store using methods other than cash. However, we’re willing to guess that you haven’t given much thought to what goes on behind the scenes and how the whole process actually works. And you may not know much about the banking system and what happens to allow you to use that debit card or write out that check.

In some ways, banking is much easier now than it was in the past. In many cases, you can handle a lot of your money-related tasks from home or wherever you happen to be, without ever going near an actual bank.

In other ways, though, the process is a lot more complicated, partly because you have so many more options. There are a lot of special types of savings and checking accounts—and many ways to access those accounts, including online, by phone or using a smartphone or other device.

We’ll discuss some of the various systems involved with the banking process and delve into some specific banking-related topics, and we think you’ll discover some interesting things you didn’t know—and possibly learn a few tips that might make your financial life a bit easier.

The FDIC Is Your Friend

The important thing to know about the FDIC is that it protects banking customers against loss should something strange or unexpected happen to a bank. Here’s a brief explanation of the FDIC from their website at (http://www.fdic.gov) .

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The FDIC—that’s short for Federal Deposit Insurance Corporation—is part of the U.S. government. Congress created the FDIC in 1933 after a terrible economic period called ‘The Great Depression’ when thousands of banks shut down and families and businesses all across America lost money they had deposited in those banks. The FDIC’s primary job is to make sure that, if a bank closes, all of the bank’s customers will get their deposits back—including any interest they’ve earned—up to the insurance limit under federal law. In the eighty years since the start of the FDIC, we have responded to about 3,000 bank failures, and we are proud to say that no depositor has lost a single penny of insured money.

SAVINGS ACCOUNTS

Traditionally, most people’s first experience with the banking system was in the form of a savings account. In the past, when you opened a savings account, you would get a little book that looked similar to a passport where the tellers would write or type entries about your deposits, withdrawals, and other financial transactions.

These days, you access your account information online, and you will likely just receive an ATM card, which you will use to access your money and get account information.

You may have had a savings account since you were a kid—but if you opened the account before you were 18 years old, you probably had to have a joint account, where a parent or guardian also was listed on the account. Once you reach the age of a legal adult, you can open accounts on your own.

Today, you can often open several different types of accounts at once. It’s common for people to open both a checking and savings account simultaneously. The checking account is generally used for daily banking like paying bills and buying groceries, whereas the savings account (as you can guess from the name) is used to accumulate a fund that might be used in case of an emergency or for some long-term goal, such as paying for college or buying a car.

A smart strategy is to link your accounts together—which is usually easy if they are all with the same bank. One advantage to doing this is the ability to set up automatic transfers. For example, if you want to put a certain amount of money in your savings every week (or every payday), you can set it up so that the bank automatically transfers that amount from your checking account into your savings account.

Another smart thing to do with linked accounts is set up overdraft protection. This means that if your checking account becomes overdrawn (or is at risk of being overdrawn), the bank will automatically take the money from your savings account in order to cover or prevent the overdraft. This can be very helpful, because it saves you from incurring overdraft fees—which can be very high—and also helps prevent your checks from being returned unpaid, or having pending charges refused, which can be very embarrassing.

When you make a deposit, those funds may not be available in your account right away. This is especially true if you are depositing a check or other non-cash currency. The bank may wait for that check to clear before crediting it to your account. Check your bank’s website (or look for signs in your local branch) for their funds’ availability policies.

Savings accounts allow you to earn interest on your money, although the rate of interest you will earn usually isn’t very high.

Understanding Interest

It’s almost impossible to talk about banking without discussing interest, which is basically a fee paid for borrowing or using someone else’s money. (Keep in mind, that someone may not refer to an actual person—it also can mean a bank, credit union, or other business or financial institution.)

You might say interest is a two-way street. It can go in either direction, depending on the type of transaction involved.

In the case of a savings account or other type of interest-earning account, the bank pays you interest, in return for letting them hold (and use) your money. On the other hand, if you are borrowing money in the form of a loan or mortgage, then you would be the one paying the bank interest.

Interest works on a percentage basis. So the amount of interest will depend on the amount of money you save or borrow. The current interest rate fluctuates according to the economy. A bank employee can give you information about the current interest rate.

How Your Money Grows

While the interest rate for your savings account may not seem very high, you might be surprised at how quickly it can add up!

That’s due in large part to the concept of compound interest. That’s a little complicated but here’s the basic idea: when you first make a deposit, you earn interest just on that amount. But periodically there is interest added onto that, so your account balance increases. You then earn interest on that new, higher amount.

For an interactive example of how compounding interest works, check out the Compounding Calculator at TheMint.org: http://themint.org/tweens/compounding-calculator2.html

Remember the Rule of 72

The Rule of 72 is a handy little trick that can help you estimate how long it will take for your money to double in an interest-earning account. You divide 72 by the interest rate, and that tells you how long it will take to double your money. For example, if you earn 4 percent interest, it will take you 18 years to double your money.

DIRECT DEPOSIT

It used to be a common sight: on payday, workers would make a trip to the bank to deposit or cash their paychecks. This is why there would often be a long line at banks on Friday afternoons. These days, many employees never actually see a traditional paycheck. That’s because a lot of companies pay their employees via direct deposit. This is where the company automatically deposits your pay into your bank account. You don’t need to do anything with your paycheck—that money just shows up in your account on payday. One thing to remember: you must make sure your employer always has your current, accurate bank account information. If you switch banks or change your account numbers, your paycheck may not get deposited or it may be delayed.

CHECKING ACCOUNTS

Most people have some type of checking account; this is what they typically use to pay bills and do their routine banking. However, the title is misleading, at least in today’s modern banking environment. These days, you often don’t even get an actual checkbook when you open a checking account. (And if you do, it may contain only a small number of starter checks, and you must order a supply if you need more.)

Thanks to the popularity of online banking, people don’t write as many checks as they used to. When you open a checking account, you will usually receive an ATM/debit card for the account. This is what many people use in order to do their bill-paying and to spend their money.

We’ll cover online banking in more detail shortly.

For now, let’s